Creating legally sound business practices is the cornerstone of avoiding legal issues down the road.
Encompassing a wide range of legal issues, having the resources of an experienced business attorney when creating new companies, navigating tax obligations, and determining that regulatory compliance standards are met can ensure your legal and financial rights remain protected. Business legal issues are inherently complex as businesses regularly interact with other entities and must adhere to the laws and regulations of different states and jurisdictions.
It is for this reason that many business owners seek legal assistance from experienced business attorneys. Acting as trusted advisors and skilled advocates, business lawyers provide key guidance on a variety of legal issues that arise when owning and operating a company. To learn more about how Baxter Legal Services can benefit your business, consider contacting our Monroe based office at (425) 686-0574 today.
Types of Business Entities
One of the most crucial decisions that must be made when forming a new business is the type of business entity under which your company will operate. The type of business entity that you select will dictate how your business will be structured, managed, taxed, and the level of risk associated with all dealings. As such, it is essential to understand the range of entities and the opportunities that each business structure will bring to your company.
Sole Proprietorship
As the most straightforward and simplistic business entity, a sole proprietorship allows a business owner to undertake the risk of the business while avoiding legal complexities and regulations. In a sole proprietorship, there is no legal difference between the business and the owner, which offers advantages and disadvantages simultaneously. The benefit of this business entity is the lack of stringent regulations and the simplicity. For many business owners who provide a service, for example, this is an ideal structure.
On the other hand, sole proprietors fully take on the risk of the business. This means that if the business fails or acquires debt, it is the business owner’s personal responsibility to handle these issues with their own assets. Regardless, while the legal activities are not separated, the financial activities are – meaning the business owner will manage all of their company’s finances independent of their own personal accounts.
Partnerships
As a business entity, partnerships are quite straightforward, involving two or more people who come together for a for-profit business venture. In this structure, it is implied that each partner will contribute labor, financial resources, and/or skill to the venture. There are two forms of partnerships: general and limited.
General partnerships are simple to form, requiring no legal process or requirements. Owners must simple join together and form their business according to their expressed wishes. Similarly, owners are required to account for the company’s finances on their own personal income taxes, meaning all profits and liabilities are assumed by the individual partners.
Limited partnerships are slightly more formal, requiring each partner to file with state authorities to obtain limited status. Here, liability is assigned based on each partner’s initial contribution to the business. In other words, one partner will not be held responsible for the actions of other partners.
Limited Liability Corporation
One of the most common types of business entities, the limited liability corporation (LLC) is a middle ground between the more simplistic partnership and the more formal corporation. LLCs are separate entities from the business owner(s), allowing for a more streamlined division of personal finances and business assets and debts.
LLCs are highly customizable as well, allowing for different structures depending on the number of business owners. For example, if there is only one owner, the entity can act as a sole proprietorship with a greater amount of protection for the owner. If there are many owners, profits and losses can be allocated accordingly.
This business structure may appear similar to a limited partnership, but LLCs operate differently on a legal level. This entity is an attractive choice for owners with personal assets that they wish to safeguard and higher risk business ventures.
Corporations
Corporations are an ideal business entity for owners who wish to fully protect their personal assets, engage shareholders, and share net profits while avoiding taxation consequences. Corporations are the most formal type of business entity, but they offer several protections and advantages for owners of high-risk business ventures. As such, the costs associated with forming and maintaining a corporation are higher than the other business entity types, and they require more detailed record-keeping and regulatory compliance.
There are several types of corporations, with the most basic and protective being the C corporation. C corporations allow for a variety of shareholders for financial backing and require a board of directors to act as the primary decision-makers for the business. Here, all the profits of the business can be taxed separately from the individual profits for the owners. Double taxation is a concern, however, but can be avoided through careful planning.
S corporations, on the other hand, utilizes a special tax status with the IRS that prevents double taxation and affords specific advantages to the owners and shareholders. While forming a S corporation has more legal requirements than a C corporation, owners are able to deduct up to 20% of their business income on their own personal tax returns, meaning it is possible to write off business losses when filing personal taxes.
Incorporating in Washington State
Washington state is the home to some of the largest companies in the world, including Starbucks, Costco, and Microsoft. Increasingly, recognized brands and startups alike are choosing to incorporate in the evergreen state, largely due to the robust supply chain, proximity to Europe and Asia, and the numerous business incentives allocated by state and local agencies. To learn more about the advantages, tax obligations, and legal requirements associated with incorporating your business in Washington, consider speaking with a business law attorney at Baxter Legal Services.
How Using an Experienced Business Attorney Can Help Ensure Your Legal and Financial Rights Remain Protected
Regardless of the size of your business, having legal counsel to uphold your legal and financial can be advantageous. Business owners encounter an assortment of challenges while establishing, operating, merging, and/or consolidating their companies. Business attorneys have the skill and experience to ensure that these matters are handled with the utmost care and precision. Having spent years working with entrepreneurs within Snohomish County and across the United States, we have identified the most common reasons why legal counsel is indispensable when owning and operating a company.
Protection Against Unforeseen Consequences
Having an experienced business lawyer on your side can help provide peace of mind by ensuring that you are protected from uncertainties, liabilities, and undue legal consequences. When owning and operating a business, there are a multitude of issues that can – and often do – arise unexpectedly. An experienced business lawyer will not only be able to anticipate these pitfalls but will be able to navigate issues with skill and ease, ensuring that liabilities and uncertainties do not impact your operations.
Optimizing Outcomes with Enforceable Contracts and Agreements
A major facet of our work as business attorneys is reviewing, drafting, and negotiating contracts, as well as ensuring that all applicable laws are understood by the business owners before entering into agreements and leases. Contracts and business agreements are complex legal documents that must meet specific standards to be considered valid. Business lawyers have a wealth of experience in drafting and negotiating airtight contracts and agreements that optimize a company’s outcomes and uphold the rights of the business owner(s).
Navigating Taxation
One of the most complication aspects of business ownership is complying with tax law. The guidance from a knowledgeable business lawyer can help prevent future issues and save your company money in the long-term. As a trusted advisor, your business lawyer will be able to develop a proactive system for record-keeping that allows for easier tax filing and identify the business structure that most effectively benefits your company come tax season.
The Importance of Corporate Governance Documents
All established companies are required to have a set of legal governing documents. For partnerships and LLCs, these documents may include a formation certificate and a partnership or operating agreement, for example. Corporations have a higher threshold of requirements, necessitating that the business has a certificate of incorporation, bylaws, shareholder agreements, and other pertinent employee agreements. The overarching purpose of corporate governance documents is to establish how the business will be operated as well as the rights and responsibilities of the owner(s).
The most efficient corporate governance documents are crafted with long-term goals in mind. With this in mind, it is important to regularly review these documents to ensure that they are up-to-date and accurate, reflecting your business’s ethos and purpose. Whether crafting new documents or reviewing existing policies, it is helpful to consider that effective corporate governance documents should achieve the following:
- Ensure accountability and transparency for the business owners and company officers
- Specify and clarify the roles and responsibilities of owners, the board, and/or its committees
- Account for record-keeping issues and ensure that the company’s statutory registrations are maintained
- Include a process for complying with corporate governance regulations in each state of operation
- Establish corporate policies that can be implemented company wide
When well-drafted, corporate governance documents are tailored to the unique needs of a business and help prevent future issues from threatening the company. Corporate governance documents are more than just mere formalities, they provide a framework for the operation of the business. As such, it is chiefly important to take time when drafting these documents, ensuring that all foreseeable issues are accounted for and that the tenets match the operational and organizational objectives of the company, its owners, and shareholders.
Whether you are a new business owner or an established business owner, having a legal representative in your corner to advocate for your rights and ensure that your objectives are met is invaluable. At Baxter Legal Services, our team of experienced business attorneys have been working alongside entrepreneurs for years, helping business owners create, expand, and stabilize their business ventures. We believe in the importance of business ownership and work diligently to support companies as they flourish. If you are ready to take your idea or company to the next level, consider contacting us at (425) 686-0574 today.